I’m working on the third and final part of the Cult of the Bear, and I was looking for research I thought I posted some time ago. Turns out not.
This is a fascinating discussion of where about a third of the SPX earnings growth is actually coming from:
"ONE OF THE BIG arguing points of the bulls is the extraordinary strength in corporate earnings. And, no question, we’ve had a spectacular boom in profits. In the third quarter of 2005, to illustrate, operating profits of the S&P 500 were up a neat 11.5%, the 14th quarter in a row of double-digit gains.
However, as the indefatigable David Rosenberg of Merrill Lynch points out, such a splendid performance reflects not so much any inordinate growth of revenues as the impact of an unprecedented mass of buybacks — $456 billion worth of stock repurchases that TrimTabs Investment Research estimated took place last year.
Operating earnings in dollar terms — as against per-share net — actually were up only 7.8% over the comparable year-earlier total. Which, David notes, was the narrowest gain in three years.
The bottom line: there’s a good deal less to the corporate bottom line than meets eye.
This is yet another example of how the headline data can be misleading versus what lies beneath.And that’s before you figure in the disproportionate impact of the energy complex to the SPX year over year gains.
As we have pointed out before, it is somehow, okay to count great energy earnings caused by oil price increases — but not inflation caused by oil price increases. Hmmmm.
The earnings story is far less robust than many are making it out to be.
Hold the Bubbly
UP AND DOWN WALL STREET
Barron’s MONDAY, JANUARY 2, 2006